Globalisation may be getting some mixed reviews, but it is still the way forward.
(By Robert Chew, Council Member, SID)
The report of the Committee on the Future Economy reaffirmed that Singapore’s future remains focused on globalisation, in spite of a “dark shift” toward protectionism in other developed markets.
Just 20 years ago, globalisation was lauded as the undisputed way forward for businesses and countries. It was supposed to act like a rising tide, lifting all boats in poor and rich countries alike.
More factories would be needed to meet the demand of the developed countries, thereby raising standards of living in emerging markets. This in turn would provide international companies with a vast and enthusiastic new customer base. Consumers in the US and Europe would have their pick of inexpensive items, and trade barriers would drop to support multinational expansion and geopolitical cooperation would flourish.
In the two decades leading up to the 2008 Global Financial Crisis, international trade grew at twice the rate of global output.
Since then, however, trade has been struggling. Recent data continues to disappoint; trade’s share of global GDP is still falling. Mainstream political support for multilateral trade deals is diminishing and populist movements are on the rise in the West.
For our future economy, perhaps we should re-examine what is good (that which we should continue to leverage), and what is bad (that we need to rethink) about globalisation, while we focus, in particular, on opportunities enabled by emerging exponential technologies referenced below.
The Good and the Bad
We learned, in Economics 101, about the benefits of international and free trade, based on the theory of comparative advantage. Countries will be better
off if each specialises where it has a comparative advantage, and if they trade with one another. Specialisation increases global output. International trade opens up local markets to foreign suppliers, thereby increasing competition and efficiency. Through international trade, firms are no longer limited by the size of their country of origin, but can sell into bigger markets. Output increases and economies of scale follow, resulting in lower production costs and prices. And of course, consumer choice is enhanced.
Other benefits suggested by free trade proponents include:
- Corporations and governments seek to work together to solve global problems as economic and financial interests become more aligned;
- Labour moves freely from country to country;
- Communities learn about other communities, as cultural intermingling and social interactions increase. Socially we become more open and tolerant of each other, and strangers are no longer considered aliens; and
- Many see speedy travel, mass communications and rapid dissemination of information as positive bi-products of globalisation.
However, the reality for some is a far cry from the way globalisation is pitched. The shortcomings manifest in a number of ways.
Globalisation is supposed to be about the elimination of barriers, but barriers remain. For instance, over 160 countries have value-added taxes on imports, which can go to as high as 22 per cent in Europe. In fact, trading patterns point to an increase in protectionist attitudes rather than a golden age of open borders. The G-20 countries (the biggest economies and trading partners in the world) have added more than 1,200 restrictive export and import measures since 2008.
A big problem for developed countries is that with globalisation, jobs are often perceived to be lost, as they are being transferred to lower-cost countries. Or, Singapore’s case, low cost foreign labour or talents are perceived to be brought in to compete “unfairly” and “take away” the jobs of locals.
Multinational corporations have also been accused of social injustice, unfair working conditions and lack of concern for the environment in their overseas supply chains.
Notwithstanding some populist governments that would like to see globalisation reversed, it is likely to continue, for better or worse. We cannot stop it (and should not try to) but there are things we can do to make globalisation better and fairer.
For one, corporations should formulate and execute their global strategies underpinned by the principles of sustainability, addressing the needs of communities by working with them to protect the environment, strengthen the social fabric,
reward labour equitably, and conduct business and operations fairly and honestly.
Reinforcing globalisation is the exponential improvement in the cost-performance of core digital technology (Moore’s Law), which is fuelling unprecedented innovation.
Innovations built on the core digital building blocks – computing power, storage, and bandwidth – are rapidly moving across boundaries, causing traditional definitions to blur and blend. The resulting so-called exponential technologies include additive manufacturing, artifificial intelligence, nanotechnology, new
materials, renewable energy production and storage, robotics, and synthetic biology. We are arguably heading towards a future in which we will have the knowledge and capabilities to make the “impossible” possible… in a borderless world.
Some have proclaimed that the most problematic aspects of globalisation may be behind us, and we will climb to new peaks in the freedom of trade, innovation and ideas.
The future economy is indeed exciting and global, but perhaps not entirely as we expect.
This article first appeared in the Q1/2018 Issue of the SID Directors Bulletin published by the Singapore Institute of Directors.